UK rents expected to soar by 15% over five years

September 5, 2018Article by Paul Avery

The latest RICS UK Residential Market Survey delivered some very encouraging news for buy-to-let investors this morning. An ongoing decline in the supply of UK rental stock, despite resilient tenant demand, means that rents should increase significantly over the next five years and push up yields going forward.

RICS reports that the number of properties listed for rent across the UK has fallen for eight consecutive quarters. Over the last three months, 22% more estate agents saw the number of new listings decrease than increase. That is the biggest shortfall recorded for a very long time, though it remains consistent with the overall trend of tightening supply over the past two decades.

Yet while rental supply is declining, tenant demand is remains buoyant – with 4% more respondents reporting growth in the last three months. While the supply of rental property is falling fastest in the North of England, East Anglia, and the South West, the biggest increases in tenant demand were seen in Scotland and Yorkshire.

The big headline resulting from these findings is that investors can expect much higher rents in the near future. RICS is projecting an increase of 2% this year, and total cumulative growth of 15% over the next five years.

To put that in context, if you are achieving a 7% gross yield today, and rents increase by 15% over the coming five years, your gross yield in 2023 will have risen to 8.05%. If the shortfall of rental properties persists – and there is every indication it will – that gross yield could climb to an enviable 9.25% in 2028.

This fundamental imbalance of supply and demand in the rental market represents an extremely positive outlook for UK property investors.

Author

Paul Avery

Paul joined us in 2016 to lead our in-house research efforts, producing reports and guidance for clients as well as the strategic market analysis behind our new project launches. His background is in sustainability in the construction sector, and he is currently being trained in property valuation to further bulk up his investment creds.